Skype
It’s 1998. Niklas Zennström is working for Tele2, a Swedish telecom operator, when he pitches an Internet telephony project to management. The idea doesn’t find takers at the time, but it keeps working on Zennström’s mind. With the Dane Janus Friis, he first launches Kazaa, that peer-to-peer file-sharing software that will make headlines, before returning to his original project: Internet telephony.
In 2000, the Everyday.com portal gathers a team in which Zennström and Friis find three Estonian developers: Jaan Tallinn, Ahti Heinla, and Priit Kasesalu. Toivo Annus soon joins them. These developers come from Bluemoon, an Estonian company where they honed their technical skills creating video games during the Soviet era. The group forms the nucleus that will give birth to Skype.
Peer-to-peer technology, which the team perfected with Kazaa, becomes the heart of the system. Users communicate directly with each other, without going through central servers. Infrastructure costs plummet, communication quality soars. The name Skype comes from Sky peer-to-peer, first conceived as "Skyper," then shortened when they discover the domain name is unavailable.
Finding financing proves difficult. The legal controversies surrounding Kazaa have damaged the founders’ reputation. They have to wait until July 2002 for the Draper Richards fund to agree to invest $250,000 for 5% of the capital. A modest valuation that will later prove to be a spectacular investment.
On August 29, 2003, Skype opens its doors to the public. About twenty people have developed this software that offers free computer-to-computer calls. The ease of use and sound quality immediately appeal. On the first day, 10,000 people download the application. A few months later, there are a million.
The company cultivates its own distinct style. The offices display no signage, a legacy of Kazaa’s legal troubles that taught the founders discretion. In Tallinn, an inflatable pool sits in the meeting room. The team codes on the fly: as soon as a feature is designed, it’s integrated into the software.
In 2004, Skype launches SkypeOut. The service opens up to calls to landlines and mobile phones at rock-bottom prices. Calls between Skype users remain free, but it’s the beginning of monetization. Investors come running. The company raises $18 million from Index Ventures and Bessemer Venture Partners, among others.
The explosive growth attracts the giants. In September 2005, eBay acquires Skype for $2.6 billion. The Estonian developers become millionaires overnight, but the corporate culture begins to crack. Tensions rise between the Tallinn teams and those in London. The integration of a startup into a large company shows its limits, and relations deteriorate quickly. The founders retained intellectual property ownership of the peer-to-peer technology through their company Joltid, creating an inextricable situation. Microsoft finally acquires Skype in 2011 for $8.5 billion. A new chapter begins.
Under Microsoft’s leadership, Skype evolves. Edward Snowden’s revelations in 2013 show that the service, once renowned for its confidentiality, now cooperates with intelligence agencies. The rebel startup has become an institutional player in the digital world.
Skype’s impact on telecommunications remains massive. The service made free international calls accessible to everyone, popularized video conferencing. In 2012, Skype handled 167 billion minutes of international calls, more than all traditional telecom operators combined.
The founders have taken different paths. Jaan Tallinn invests in projects related to humanity’s survival; he now considers time more precious than money. The Estonian team, despite its fortune, maintains a certain modesty. No ostentatious spending, thoughtful investments.
Skype transformed an ambitious technical project into a universal communication tool. The service demonstrated the power of peer-to-peer and the importance of a simple interface. A technology can evolve, moving from disruptive innovation to institutionalization, while remaining useful to millions of people every day.